Sterling Stronger as May’s Draft Law Passes Parliament Vote

The government’s Brexit bill was overwhelmingly passed by MPs last night without amendment and will now enter the House of Lords for debate. A final vote from the upper house will take place before the end of the month, providing Theresa May with ample time to trigger Article 50 before her self-imposed deadline of the end of March.

British and EU negotiators aim to have the Brexit agreement ready to send to the European Parliament by October 2018, leaving May with sufficient time to complete the withdrawal from Europe within the 2 year post- Article 50 timeframe. In October 2018, parliament will get a choice between accepting the proposed termination agreement or rejecting it and getting no deal from the EU, instead reverting to the standard terms applied by the WTO.

With the EU having taken 9 years to negotiate CETA, its trade agreement with Canada and the UK Parliament 8 months to draw up and pass May’s 137 word draft law on the form of Brexit, it’s hard to see where the drive to conclude this agreement within the stipulated timeframe will come from.

That said, for the moment the removal of this hurdle does provide some clarity and has provided additional support for sterling which has opened higher this morning against both the dollar (1.2560) and the euro (1.1740 / 0.8517). There is little in the way of data due out today to drive currency markets so we can expect markets to trade within ranges for this session. However, with inflation, unemployment and retail sales all due out from the UK over the coming week, the pound should continue to be supported as the data should show that the economy continues to trade strongly. Certainly, this is the view of the BOE which increased its growth forecast last week. The reduction in political risk combined with supportive data should see the pound extend gains especially as political risk in both the US and Europe are on the rise. Strong showings from the Le Pen in the French presidential race and indecision around Trump’s economic policies- especially around the long-held “strong dollar” policy will weigh on both these currencies.

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